Apple's iPhones and iPads are wildly popular in China, encouraging smuggling and crowds at the company's stores as consumers try to lay their hands on the latest products.

Yet Apple stood in sixth place in China's fractured smartphone market with only a 6.9 percent share in the March-June period according to consultancy Analysys International, while Xiaomi -- which was only established four years ago -- ranked second with 13.5 percent.

Bruce Sewell, Apple's general counsel and senior vice president of legal and government affairs, told a panel discussion at the World Internet Conference that there are "many good competitive phones in China" in a nod to Xiaomi founder Lei Jun, sitting alongside him.

But when asked about Lei's previous claims that Xiaomi will become the world's market leader in smartphones, he said: "It is easy to say, it is more difficult to do," to laughter and applause from the audience in Wuzhen.

Lei shot back: "In this magic land, we produced not only a company like Alibaba, but a small miracle like Xiaomi."

Alibaba founder Jack Ma was also onstage, fresh from the listing of his company on the New York Stock Exchange, the world's biggest initial public offering to date.

Xiaomi phones boast processors that use Google's Android software and sleek designs which some say mimic top Apple models.

But they compete at a different price point, selling at a fraction of the cost of a Galaxy S5 from market leader Samsung, or the latest iPhones.